Star-Bulletin news services
Stocks drop ahead
of inflation report
NEW YORK >> Stocks fell yesterday after three days of gains as investors dealt with the likelihood of interest rates rising significantly higher than expected when the Federal Reserve meets later this month.
Oil prices seem to be stabilizing after reaching 21-year highs in recent weeks, but inflation worries linger. Some investors may have been taking a cautious approach ahead of the Labor Department's monthly report on wholesale prices, an important inflation gauge.
The Producer Price Index, which measures prices of goods before they hit store shelves, was to have been released today, a day earlier than scheduled, because U.S. government offices and most financial markets will be closed tomorrow in observance of former President Reagan's death.
However, government officials announced late yesterday the PPI report for May would be postponed until further notice because of difficulties in calculating the index. A revised release date was not set, but could be no earlier than Tuesday, officials said.
With so much uncertainty, it seemed many investors were inclined to stay on the sidelines, and volume was low. Such a day "can't be used as any indication of a trend," said Neil Massa, an equity trader with John Hancock.
"It just seems like the start of the summer doldrums," Massa said. "I think once the end of the month comes, we can start to move forward. Until then we'll be trading sideways. ... I don't see any other catalyst to push us forward."
The Dow Jones industrial average declined 64.08, or 0.6 percent, to finish at 10,368.44.
The broader gauges also closed lower. The Nasdaq composite index fell 32.92, or 1.6 percent, to 1,990.61. The Standard & Poor's 500 index shed 10.85, or 1 percent, to 1,131.33.
The Treasury's two-year note fell 432 to 991632, with its yield gaining 7 basis points to 2.76 percent. The 10-year note declined 1032 to 991832, with its yield rising 4 basis points to 4.80 percent.
The slide came a day after Federal Reserve Chairman Alan Greenspan said the central bank was prepared to do whatever was necessary to ensure sustainable economic growth in the face of rising inflation and energy prices. The unusually direct statement led some on Wall Street to believe the Fed might raise rates as high as half a percentage point at its June 29-30 meeting, higher than the 0.25 percent the market has been expecting.
"Equities kind of shrugged it off yesterday; today it seems like folks are saying, 'Is inflation an issue? How far will the Fed have to go? How long will this tightening last?"' said John Caldwell, chief investment strategist for McDonald Financial Group. "Higher rates certainly will have an impact. That will be a juggling act for the stock market over the next six months."
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